Facts: Husband and Wife divorced after 30 years of marriage. When dividing the marital property, the trial court placed a constructive trust over Husband’s $1.2 million life insurance policy and designated Wife as the trustee. The trial court directed Husband to designate Wife as a one-third beneficiary, each of their two children as a one-sixth beneficiary, and Husband’s father (“Grandfather”) as a one-third beneficiary.

The trial court’s judgment of divorce contained this specific provision:

[Husband] and Wife are awarded their respective life insurance policies; however, the [c]ourt hereby places a constructive trust over Husband’s [$1,200,000] life insurance policy (approximate value) with Wife serving as Trustee. Husband shall designate [Wife] a one-third beneficiary (1/3); Husband’s two children . . . each a one-sixth (1/6) beneficiary; and [Grandfather] a one-third (1/3) beneficiary. These beneficiary designations shall be irrevocable. Wife, as Trustee, shall receive notices from the insurance company of all activity pertaining to this policy. No one shall encumber this policy. The parties will cooperate with each other to effectuate this provision.

One year later, Husband filed a motion to substitute his current wife as a beneficiary to his life insurance policy in place of Grandfather, who had predeceased him.

The trial court denied Husband’s motion to substitute his new wife as a beneficiary in place of Grandfather in the life insurance policy. Specifically, the trial court ruled it lacked the ability to divest or alter the division of the life insurance policy because the policy is an asset owned by Wife. The trial court further ruled that the death of a beneficiary means that interest reverts to Wife.

Husband appealed.

On Appeal: The Court of Appeals reversed the trial court.

Husband argued the trial court erred in denying his request to amend the life insurance policy after Grandfather’s death. Husband believed he retained a one-third interest in the policy as evidenced by his selection of Grandfather as a beneficiary.

Wife argued the policy was awarded to her as marital property and, therefore, the court was without jurisdiction to modify the property once the divorce became final. She believed Grandfather’s interest automatically transferred to her and the children upon his death.

Tennessee law provides that beneficiaries named in a life insurance policy ordinarily hold a mere expectancy and not a vested right or interest in the policy.

There is an exception, however, where a divorce decree requires a party to keep a life insurance policy in effect and denies him or her the right to change the beneficiary. In that instance the named beneficiaries hold a vested interest in the policy.

After reviewing the record, the Court reasoned:

Husband, through the constructive trust, retained ownership of the policy but was specifically directed by the trial court to allocate a one-third interest in the policy to Wife. Wife held a vested interest in one-third of the policy but did not automatically assume a vested interest in Grandfather’s share upon his passing. At most, she gained an expectancy of a portion of his share in the event that his share was not otherwise allocated prior to Husband’s passing. Accordingly, the trial court erred in denying the motion to amend the life insurance policy. As the owner of the policy, Husband is permitted to reallocate Grandfather’s interest. As trustee, Wife must implement any changes directed by Husband that do not conflict with the divorce judgment.

Accordingly, the trial court was reversed and the case remanded to allow Husband to substitute his new wife as a beneficiary of his life insurance policy in place of Grandfather.

Helton v. Helton (Tennessee Court of Appeals, Eastern Section, November 3, 2015).

Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family Law Attorney.